Abstract

The term “federalism” does not have a clear meaning: it must be specifically defined in the context in which it will be applied it. Regarding the Italian case, this definition can be found in the Fiscal Federalism Delegation Act (FFDA), Law of 5th May 2009, No. 42 (FFDA), which specifies the rules contained in Article 119 of the Italian Constitution, Paragraphs 1-5. The rules in question are to be implemented through an extensive series of decrees. The main objective which is indicated and that, therefore, should be pursued, is stated in Para. 1 of Art. 119: it is necessary to ensure “local governments’ financial autonomy of revenues and expenditures”. To achieve this autonomy in practice and apply it to all Sub-Central Governments (SCGs), the financial system which will be implemented should ensure the availability of a resources level likely to “fully finance the public functions” attributed to these institutions (Art. 2, Para. 2, Let. e) of the FFDA). Furthermore, it is also necessary that the system applies “an appropriate degree of fiscal flexibility” to ensure that all institutions, including those in the lowest fiscal capacity, have a sufficient budget autonomy. In this paper, we want to demonstrate how a system based on additional taxes to personal income tax (that is called IRPEF in Italy), as it is foreseen by these decrees, and which is not corrected by monetary compensations for the fiscal effort, violates the fiscal flexibility principle, and also jeopardizes the financial sustainability of the reform, thereby increasing the gaps between the different macro-areas and the overall deterioration of macroeconomic management capacity.

The Implementation of Fiscal Federalism in Italy. Implications for the Southern Regions

Language:

Italian

Keywords:

Macroeconomic Management; State and Local Government; Intergovernmental Relations; State and Local Taxation and Revenue; State and Local Budget and Expenditures; Interjurisdictional Differentials and Their Effects; Federalism; Fiscal Decentralization.